Multinational Financial Management Exam Practice Tests
Course Introduction
Multinational Financial Management explores the complexities of financial decision-making in the international business environment. Topics include foreign exchange markets, international financial instruments, risk exposure and management, global capital budgeting, multinational capital structure, and working capital management. The course emphasizes understanding the challenges posed by currency fluctuations, differing regulatory environments, and cross-border financing. By analyzing real-world cases and applying theoretical frameworks, students learn to assess opportunities and risks in international investment, financing, and operations, equipping them with the skills essential for effective financial management in a global context.
Recommended Textbook
International Financial Management 13th Edition by Jeff Madura
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21 Chapters
1584 Verified Questions
1584 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) International trade is the most common form of direct foreign investment (DFI).
A)True
B)False Answer: False
Q2) With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with maximizing ____.
A)shareholder wealth; short-term earnings
B)shareholder wealth; shareholder wealth
C)short-term earnings; sales volume
D)short-term earnings; shareholder wealth
Answer: B
Q3) Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.
A)True
B)False
Answer: False
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Page 3
Chapter 2: International Flow of Funds
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Sample Questions
Q1) Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.
A)True
B)False
Answer: True
Q2) ____ purchases more U.S. exports than the other countries listed here.
A)Italy
B)Spain
C)Mexico
D)Canada
Answer: D
Q3) Outsourcing is the process of subcontracting to a third party in another country to provide supplies or services that were previously obtained internally.
A)True
B)False
Answer: True
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Page 4
Chapter 3: International Financial Markets
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward?
A)$44,500
B)$45,000
C)$526 million
D)$47,500
E)$556 million
Answer: D
Q2) The LIBOR varies among currencies because the market supply of and the demand for funds vary among currencies.
A)True
B)False
Answer: True
Q3) The government enforcement of securities laws varies among countries. A)True
B)False
Answer: True
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Chapter 4: Exchange Rate Determination
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69 Verified Questions
69 Flashcards
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Sample Questions
Q1) When the Japanese yen appreciates against the U.S. dollar, this means that the U.S. dollar is strengthening relative to the yen.
A)True
B)False
Q2) The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____ percent
A)depreciated; 5.80
B)depreciated; 4.00
C)appreciated; 5.80
D)appreciated; 4.00
Q3) The supply curve for a currency is downward sloping since U.S. corporations would be encouraged to purchase more foreign goods when the foreign currency is worth less.
A)True
B)False
Q4) Financial flow foreign exchange transactions are more responsive to news than trade-related transactions are.
A)True
B)False
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Chapter 5: Currency Derivatives
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161 Flashcards
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Sample Questions
Q1) A forward rate for a currency is said to exhibit a discount if:
A)the forward rate exceeds the existing spot rate.
B)the forward rate is less than the existing spot rate.
C)the forward rate exceeds the expected future spot rate.
D)the forward rate is less than the expected future spot rate.
E)none of the above
Q2) Thornton, Inc. needs to invest 5 million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would:
A)convert the rupees to dollars in the spot market today and convert rupees to dollars in one year at today's forward rate.
B)convert the dollars to rupees in the spot market today and convert dollars to rupees in one year at the prevailing spot rate.
C)convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate.
D)convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at the prevailing spot rate.
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.
A)inward shift in demand for; outward shift in supply of
B)inward shift in demand for; inward shift in supply of
C)outward shift in supply of; outward shift in demand for D)outward shift in supply of; inward shift in demand for
Q2) The European Central Bank is located in:
A)London.
B)Denmark.
C)Luxembourg.
D)Frankfurt.
Q3) The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.
A)Latin American
B)European
C)Asian
D)North American
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Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) If the interest rate is lower in the United States than in the United Kingdom, and if the forward rate of the British pound is the same as its spot rate:
A)U.S. investors could possibly benefit from covered interest arbitrage
B)British investors could possibly benefit from covered interest arbitrage.
C)neither U.S. nor British investors could benefit from covered interest arbitrage.
D)A and B
Q2) Assume that the interest rate in the home country of Currency X is much higher than the U.S. interest rate. According to interest rate parity, the forward rate of Currency X:
A)should exhibit a discount.
B)should exhibit a premium.
C)should be zero (i.e., it should equal its spot rate).
D)B or C
Q3) If interest rate parity (IRP) does not hold, there is still the possibility that covered interest arbitrage is not worthwhile because of such factors as transaction costs, currency restrictions, and differential tax laws.
A)True
B)False
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Page 9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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59 Flashcards
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Sample Questions
Q1) There is much evidence to suggest that Japanese investors invest in U.S. Treasury securities when U.S. interest rates are higher than Japanese interest rates. These investors most likely believe in the international Fisher effect.
A)True
B)False
Q2) Assume that the interest rate offered on pounds is 5 percent and the pound is expected to depreciate by 1.5 percemt. For the international Fisher effect (IFE) to hold between the United Kingdom and the United States, the U.S. interest rate should be ____.
A)3.43 percent
B)5.68 percent
C)6.5 percent
D)7.3 percent
Q3) If the IFE theory holds, that means that covered interest arbitrage is not feasible. A)True B)False
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10
Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) Fundamental models examine moving averages over time and thus allow the development of a forecasting rule.
A)True
B)False
Q2) If the foreign exchange market is ____ efficient, then historical and current exchange rate information is not useful for forecasting exchange rate movements.
A)weak-form
B)semistrong-form
C)strong-form
D)all of the above
Q3) The absolute forecast error of a currency is ____, on average, in periods when the currency is more ____.
A)lower; volatile
B)higher; stable
C)lower; stable
D)none of the above
Q4) Foreign exchange markets appear to be strong-form efficient.
A)True
B)False
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) A U.S. MNC has the equivalent of $1 million cash outflows in each of two highly negatively correlated currencies. During ____ dollar cycles, cash outflows are ____.
A)weak; somewhat stable
B)weak; favorably affected C)weak; adversely affected D)none of the above
Q2) A reduction in hedging will probably reduce transaction exposure.
A)True
B)False
Q3) Since earnings can affect stock prices, many MNCs are concerned about translation exposure.
A)True
B)False
Q4) Purely domestic firms are never affected by economic exposure.
A)True
B)False
Q5) Currency correlations are generally negative.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that the euro is going to depreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:
A)sell euros forward
B)purchase euro currency put options.
C)purchase euro currency call options.
D)purchase euros forward.
E)remain unhedged.
Q2) Quasik Corp. will be receiving 300,000 Canadian dollars (C$) in 90 days. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. Quasik plans to purchase options to hedge its receivables position. Assuming that the spot rate in 90 days is $.71, what is the net amount received from the currency option hedge?
A)$219,000
B)$222,000
C)$216,000
D)$213,000
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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58 Flashcards
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Sample Questions
Q1) As opposed to transaction exposure, managing economic exposure involves developing a(n) ____ solution.
A)short-term
B)long-term
C)immediate
D)none of the above
Q2) ____ is (are) not a limitation of hedging translation exposure.
A)Inaccurate stock price forecasts
B)Inadequate forward contracts for some currencies
C)Taxation on gains from forward contracts
D)Increased transaction exposure
Q3) Translation exposure results when an MNC translates each subsidiary's financial data to its home currency for consolidated financial statements.
A)True
B)False
Q4) Even if translation exposure does not affect cash flows, it is a concern of many MNCs.
A)True
B)False
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Chapter 13: Direct Foreign Investment
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53 Flashcards
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Sample Questions
Q1) MNCs can probably achieve more desirable risk-return characteristics from their project portfolios if they sufficiently diversify among products and geographical markets.
A)True
B)False
Q2) According to your text, ____ is a country that has been perceived as one of the most attractive sources of new demand.
A)Paraguay
B)Morocco
C)Sweden
D)China
Q3) To enter markets where superior profits are possible, an MNC should:
A)acquire a competitor that has controlled its local market.
B)establish a subsidiary or acquire a competitor in a new market.
C)establish a subsidiary in a market where tougher trade restrictions will adversely affect the firm's export volume.
D)establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.
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Chapter 14: Multinational Capital Budgeting
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) If an MNC exports to a country and then establishes a subsidiary to produce and sell the same product in that country, cash flows from existing operations would likely be ____ affected by the project. If an MNC establishes a foreign manufacturing subsidiary that buys components from the parent, the cash flows from existing operations would likely be ____ affected by the project.
A)adversely; adversely B)favorably; adversely C)favorably; favorably D)adversely; favorably
Q2) In conducting a multinational capital budgeting analysis, the subsidiary's perspective should always be used.
A)True
B)False
Q3) If partial financing is provided by the foreign subsidiary, including foreign interest payments in the cash flow analysis may avoid overstatement of the estimated foreign cash flows.
A)True
B)False
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Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) At present, U.S. firms acquire more targets in China than in any other country.
A)True
B)False
Q2) Which of the following tax-related factors need not be considered in assessing a foreign target?
A)corporate tax rates in the host country
B)withholding tax rates in the host country
C)withholding tax rates in the home country
D)corporate tax rates in the home country
E)All of the above must be considered in assessing a foreign target.
Q3) Which of the following factors is least likely to cause the required rate of return to vary among MNCs assessing the same foreign target?
A)differences in the timing of remittances from the target to the parent
B)differences in the desired use of the target
C)differences in the local risk-free interest rate
D)differences in the exchange rate between the target's currency and the parent's currency
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) A firm may incorporate a country risk rating into the capital budgeting analysis by:
A)adjusting the NPV upward if the country risk rating has fallen (implying increased risk) below a benchmark level.
B)adjusting the discount rate upward as the country risk rating decreases (implying increased risk).
C)A and B
D)none of the above
Q2) According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:
A)compare each form of a country risk rating to a benchmark level.
B)estimate the effect of each form of country risk on cash flows.
C)estimate the effect of each form of country risk on the income statement and balance sheet.
D)adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs.
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18
Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) Because their economies have lower growth, the cost of debt in industrialized countries is much higher than the cost of debt in many less developed countries.
A)True
B)False
Q2) When MNCs pursue international projects that have a high potential for return, but also increase their risk, this increases the return to the bondholders that provided credit to the MNCs.
A)True
B)False
Q3) The ____ an MNC, the ____ its cost of capital is likely to be.
A)larger; higher
B)larger; lower
C)smaller; lower
D)A and C
Q4) Capital asset pricing theory would most likely suggest that the MNC's cost of capital is lower than that of domestic firms.
A)True
B)False
Page 19
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) In a(n) ____ swap, the notional value is increased over time.
A)amortizing
B)Basis
C)zero-coupon
D)accreting
Q2) Foreign subsidiaries of U.S. MNCs can avoid exchange rate risk by financing projects with dollars.
A)True
B)False
Q3) If an MNC borrows funds in a foreign currency and that currency appreciates over time, the MNC will need fewer funds to cover the coupon or principal payments. [Assume the MNC has no other cash flows in that currency.]
A)True
B)False
Q4) Floating-rate bonds are oFten issued with a floating coupon rate that is tied to LIBOR. A)True
B)False
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Chapter 19: Financing International Trade
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Sample Questions
Q1) There is an active secondary market for banker's acceptances.
A)True
B)False
Q2) As part of the Ex-Im Bank's export credit insurance programs, a(an) ____ Policy is generally issued to an administrator, such as a bank, trading company, insurance broker, or government agency, which then administers the policy for multiple exporters.
A)Multibuyer
B)Single-Buyer
C)Small Business
D)Umbrella
Q3) In a ________ or clearing-account arrangement, the delivery of products to the importer is compensated for by the exporter's buying back a certain amount of the product from the importer.
A)accounts receivable financing
B)compensation
C)counterpurchase
D)barter
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) Assume the annual British interest rate is above the annual U.S. interest rate. Also assume the pound's forward rate of $1.75 equals the pound's spot rate. Given this information, interest rate parity ____ exist, and the U.S. firm ____ lock in a lower financing cost by borrowing pounds for one year. A)does; could B)does; could not C)does not; could not D)does not; could
Q2) If interest rate parity exists, and the forward rate is an accurate estimator of the future spot rate, the foreign financing rate will be ____ the home financing rate. A)lower than B)greater than C)similar to D)none of the above
Q3) An MNC's parent or subsidiary in need for funds commonly determines whether there are any available internal funds before searching for outside funding. A)True B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) Refer to Exhibit 21-1 above. What is the probability that the yield of the two-currency portfolio is less than the domestic yield?
A).1575
B).35
C).6425
D)1
E)none of the above
Q2) The Mexican one-year interest rate is 9 percent, while the U.S. one-year interest rate is 3 percent. Assume that interest rate parity exists. If a U.S. uses the forward rate to forecast the exchange rate of the peso in one year, the expected effective yield from investing in a one-year deposit in Mexico is:
A)12 percent.
B)9 percent.
C)3 percent.
D)6 percent.
Q3) Leading refers to paying for supplies earlier than necessary; lagging refers to delaying the payment for supplies.
A)True
B)False
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Page 23